United Western looks for merger details from RBI

MUMBAI: The United Western Bank board wants more clarity from the RBI on the proposed amalgamation of the bank with IDBI.

The board which met on Thursday has decided to constitute a 4-member committee to put forth a list of issues on which more clarity would be sought. PB Nimbalkar, a director of the bank, is expected to chair the committee. The board did not discuss the pricing, but may later ask the central bank as to how the figure of Rs 28 a share was arrived.

Accordingly, the bank has informed the BSE that the board at its meeting has considered the draft amalgamation scheme. However, the board was of the view that certain issues relating to taxation and accounting procedures needed clarification. The board has decided to meet shortly some time next week to finalise the suggestions or objections for communicating the same to the RBI.

Incidentally, IDBI had not quoted any figure in its bid for the takeover of UWB. Another public sector bank was the highest bidder among the 17 entities which had bid for the old private sector bank. IDBI is unlikely to pay a higher price than Rs 28 per share for the bank.

International rating agency Standard & Poor’s Ratings Services on Thursday said it expects UWB’s weaker asset quality to impact IDBI’s financial profile negatively. However, the agency said its ratings and outlook on IDBI would not be affected. The Rs 150- crore purchase consideration will have a negligible impact on IDBI’s reported shareholders’ funds of Rs 6,659 crore as on March 31, ’06.

Bankers who had a look at UWB books before say there would be a Rs 500-crore hole in the balancesheet. The bank has a gross NPA of Rs 493 crore (13.84%) and a net NPA of Rs 201 crore (6.16%) as on March 31, ’06. It has a negative CAR of 0.3%. UWB’s networth as on June 30 stood at Rs 114 crore and has posted losses of Rs 98.64 crore in ’04-05 and Rs 106.48 crore in ’05-06.

Said a senior analyst: “IDBI is already paying a high price at Rs 28 per share. In addition, IDBI will also have to provide for the NPAs of the bank and look at bringing back the CAR from negative to the RBI regulated 9%. The upside would be the real estate and the branches which they would get, especially in Maharsahtra. However, many of these branches would be in the rural and semi-urban areas.

Also, the customer profile of UWB would be different from that of the retail SBU of IDBI.” In fact, as compared to a minimum balance of Rs 5,000 which a customer has to keep in IDBI, the minimum balance in case of UWB is Rs 1,000. UWB’s loan quality and recovery from its Rs 4,000 crore loan portfolio is a concern, given its regulatory net NPA ratio of 5.66% as on March 31, ’06, which is significantly above the peer group average of about 2%.